Ladies and gentlemen, thank you for standing by and welcome to the MaxLinear Q3 Earnings Conference Call. [Operator Instructions] This conference is being recorded today October 29 of 2012. And I would now like to turn the conference over to Nick Kormeluk, with MaxLinear. Please go ahead.

Thank you, operator. Good afternoon, everyone and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2012 financial results. Today's call is being hosted by a Dr. Kishore Seendripu, CEO and Adam Spice, CFO. During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among other statements concerning future events or projections, we will provide information relating to our current expectations for the fourth quarter 2012 revenue; estimated accruals relating to potential export control violations; our expectations concerning trends in our cable business and terrestrial revenues; and our efforts to expand our addressable markets, gross profit percentage and operating expenses; potential impact from our pending litigation with Silicon Labs; our current views regarding trends in our markets, including the anticipated impact of new design wins and the size and potential for growth in our markets; and our competitive position in our target markets. These statements are forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our target markets, including the cable market, do not grow or if we are not successful in expanding our target addressable markets through the introduction of new products. In addition, substantial competition in our industry, potential declines in average selling prices, intellectual property litigation such as pending matters between MaxLinear and Silicon Labs, and cyclicality in the semiconductor industry, could adversely affect future operating results. The potential export control violations present risks of fines, penalties and other enforcement actions from the Bureau of Industry and Security…

Thank you, Nick and good afternoon, everyone. Thank you all for joining us today. Before diving into the financial highlights, I would like to note that in the third quarter of 2012, consistent with the prior guidance, we delivered record revenue on the strength of our product cycle driven momentum in cable. In addition, we experienced significant revenue growth in our legacy and new terrestrial products. These 2 factors, in combination with our significantly improved gross margin, generated strong operating cash flow generation in the quarter. Additionally, as announced in the quarter we repurchased approximately 1.65 million common shares from our venture capital investors for $9.2 million, significantly addressing the venture capital share overhang dynamics. Despite the challenging macro market dynamics for consumer terrestrial market, and our cable customers' stated intention to lean down inventory as they approach the end of the year, we are both securing and are on a strong pace to garner a significant number of design wins in both cable and terrestrial TV. We are ever confident in our strengthening competitive position and accelerating design win momentum in the terrestrial market, which are driven by our industry-leading latest generation super radio hybrid TV tuner and tuner-demodulator solution. Our continued technology leadership relative to the competition in cable is advanced even further by our industry-leading 4th generation broadband RF mixed-signal Full-Spectrum Capture technology. Recently major cable OEMs have announced next generation products for cable, data and video gateway to incorporate our latest Full-Spectrum Capture cable receiver products, namely MxL265 and 267. We are excited about the alignment of our disciplined R&D investment, and our steady progress towards TAM expansion initiatives beyond cable and terrestrial markets. Last week we announced the MaxLinear 500 family of satellite receivers, which represent the industry's first single-chip Full-Spectrum Capture satellite front-end devices.…

Thank you, Kishore. I'll first review our results and then briefly discuss our outlook. In summary, Q3 revenue was a record $27.8 million, above the midpoint of our guidance of $27 million to $28 million. This represents quarter-on-quarter growth of 14% and 58% year-over-year. As Kishore noted, net revenue for the third quarter was driven by double-digit sequential growth in cable and relatively strong growth in terrestrial. We also experienced design win momentum across a wide range of our product areas. Now moving to the income statement. GAAP and non-GAAP gross profit for the third quarter were both approximately 63% of revenue, above our prior guidance of 61%. This compares to 62% in the second quarter of 2012 and 64% in the year-ago quarter. This increased sequential gross margin was due to a combination of favorable mix changes, as well as COGS improvements driven by our supply chain team. Our Q3 GAAP operating expenses were $17 million, which includes $2.6 million of stock-based compensation, $1.2 million from the accrual related to our performance-based equity bonus plan for 2012 and $100,000 in net professional fees and potential penalties attributable to the export compliance matter in Silicon Lab's patent litigation. As we have discussed previously, any payouts under our 2012 performance bonus plan will be settled in shares of MaxLinear stock. Net of these items, operating expenses were $13.2 million, which is $100,000 lower than the prior quarter and $800,000 lower than our prior guidance of $14 million. Q3 GAAP operating expenses include $10.9 million of R&D expenses, which in turn included stock-based compensation of $1.7 million and $700,000 related to the 2012 bonus plan. The favorability in R&D spending relative to guidance was driven in part by an increasing amount of new hires being located in lower cost location and certain…

[Operator Instructions] And our first question comes from the line of Tore Svanberg from Stifel, Nicolaus.

A few questions. First of all on cable, you mentioned you have started to see maybe some flattening out of inventories. So I was just hoping you could elaborate a little bit on that and sort of -- especially talking about voice and data and video.

This is Kishore. Basically at this point in the quarter, if you compare it to the last 2 quarters, we were more significantly booked going into the quarter than we are today. Having said that, as Adam mentioned in his script, we feel that maybe there's some turnaround happening right now because we are starting to see pull-ins and new orders from contract manufacturers of some of the major OEMs who are our main customers. So we don't see any significant impact of any environmental changes in terms of the actual pull-off cable data modems from many of our customers -- any of our customers. However, there is a determined intent on some of these customers to lean out their inventories as they end the year, and so we are seeing the effect of that. There's also a secondary factor, which may not be a main factor yet, but that could be motivating some leaning out of inventories. That is primarily due to the fact that we have now launched our full spectrum cable receiver that supports, in conjunction with the Intel Puma 6 platform, it supports an incredibly high speed 1 gigabit per second data rates for cable data modem. And we also know that some of the major OEMs have announced a number of gateway products in their analyst calls last week, where they have showcased these products, and they're in very high optimistic expectation of these products starting shipping sometime in the first half of next year. That will also be motivating some of the reasons why they're leaning their inventories down. However, we feel that the transition cannot happen fast enough, even though we would be good beneficiaries of this transition. So we feel that these orders are beginning to trickle back and with regards to pull-ins, where we're just taking a very cautionary stance on the subject right now.

Tore, there's one other thing I'll provide a little more context. This is Adam. In the prior 2 quarters, we've indicated that we've gone into the quarters booked about 82% to the midpoint of the range. And so I would say, we're not talking about a kind of a stark contrast to prior quarters. We went into this quarter about 77% booked to the midpoint of our current range for Q4.

Very good. And as a follow-up on cable, when should we expect some full-band capture revenue? And Kishore, as that transition happens, would you expect your share to be higher than in your current cable business?

So I want to be careful about talking about share in our current -- of our current -- I just want to ask the question back to you again. You mentioned our share of cable revenues in our revenues? Or you're talking of our share of the cable revenues in the data voice market?

Well, there just seems to be a product transition that's coming towards your full-band capture solution, and you said that should be a positive transition for you. So I'm just trying to understand from a share perspective what's going to happen there.

I think that with regards to our own revenues, we're announcing, as we have talked in the call, terrestrial revenue is now picking up some nice growth. So terrestrial instropic [ph] product that has been declining for a few quarters in the row is now picking up some revenue growth, a nice steady growth, because of hybrid televisions. We are picking up the momentum there, the revenue is growing and should get stronger as we get into the next year. So proportionally, when terrestrial is growing, we expect cable to also grow in a balanced way. However, the transition for it to be able to happen meaningfully, we don't think it will happen the first half of next year. However, in the second quarter time frame, there could be some small shipment that start, and we should start seeing the positive effect of that in terms of revenues and such. And also, our technology now change to 40-nanometer, which is what our Full-Spectrum Capture chip is in. But talking about share changes, today in the marketplace, we are the only offering that supports 24 channels worth of data reception capability using our full-spectrum chip. There's not a competitor nor a -- with regards to front end, nor the platform, with which we work most collaboratively, namely the Intel Puma 6 platform, who can support this level of channel density and the benefits of the data rates of about 1 gigabit per second. So we hope that this translates into actually even more market share gain. But on our own end, we are not counting on that. We are assuming a modest even split between our platform to the Intel platform and the non-Intel platform.

Very good. And on satellite, sounds like there's a lot of design activity going on there. I think you've always sort of positioned that as a 2014 revenue driver. But just given all the design activity, could you start to see some revenues there already next year?

I would not -- the satellite design cycle is much longer than even the cable cycle. So I would leave it in 2014 as a revenue growth. But I want to add one thing though is that Adam in his expenses talked about, for the guidance for the fourth quarter, about a 40-nanometer mask will hit the books. We actually are seeing -- we already received that mask, you can see the satellite receiver announced. So it's pretty exciting for us because it's the world's first Full-Spectrum Capture reception for satellite and there's nothing like it out there available in the marketplace, and it's going to be a while before any competition catches up with that level of performance and feature set that we are supporting today.

Very good. Just last question for Adam. Adam, could you give us maybe specifically how much the Silicon Labs legal -- or Silicon Labs associated legal expenses going to be in the quarter? And should we sort of model that at this run rate going forward?

Yes, these things are very hard to predict as you can imagine. It depends on the different actions that are taken and how they're responded to. I would say that when we went into -- when we provided our guidance for Q3, we estimated the total expenses for export compliance and Silicon Labs litigation would be about $0.5 million in the quarter, and it came in a little bit heavier than that as far as what contributed in Q3. So I think that for Q4, we're looking at that probably closer to $1 million in the quarter. It's kind of what we're looking at right now.

And our next question comes from Anil Doradla from William Blair.

A couple of questions. Kishore, you talked about, what, 77% versus around 80% booked. But when I look at the guidance, is it fair to say that you're baking in a certain amount of conservativeness? Are you baking a certain amount of cancellations or push-outs? Because to me, I don't know, it appears, based on the product cycle that you're in, it's not material difference.

Anil, I think it was Adam who guided on the booking here, and he's correct. But he said 70% of the current guidance.

77%.

77% of the current guidance range, which is $25 million to $26 million. So because we booked about 80% in the previous quarters, and according to the guidance we've set, in this particular case, we took our current bookings and extrapolated what the guidance should be. That's another way to think about the problem. So I don't think there's anything that we see that is going to be -- based on this guidance that is going to adversely affect us any further. They'll always be crowded with surprises. We have arranged to sort of cover that. However, is there upside possibility? We always put that in the range as well. And if those inventories in the cable side do lean out and they start ordering more, we're in a very good position to supply the product and book the revenue. So I would say that right now we would stick to our guidance.

Yes, Anil, I think I'll provide a little more color. This is Adam. I think we've done a pretty good job in this last several quarters in being pretty accurate to our revenue guidance. I think we are equally comfortable this quarter where we're at. I think that as we talked about more of the mix in Q4 moving to terrestrial, and terrestrial being more of turns-oriented business, it is more difficult to predict. It's a little bit harder to go out there with a little more aggressive forecast because you don't have the bookings visibility. Could things happen? Yes, it could be to provide some upside. But I think we're very comfortable right now particularly thinking where the contribution from cable is going to be, and cable typically does give you much better visibility. So I think all that factors in to where we are. And I think, also the other thing to note is as much as we are a product-cycle driven company, some of what we might be seeing is more macro-oriented because we're seeing many of our semi-peers, as you know, kind of coming in with similar guidance as far as decreases from the Q4 levels. So I think part of it is macro, part of it is very much the cable, folks wanting to bring down their inventories, and that factoring into our guidance. But also, there could be some macro factors at play here, particularly as it relates to our consumer business.

Good. And the other question I had was if we just look at some of the inventory issues going around, do you think that this is just a one-quarter event, by Q1 we're going to work through it? Or do you think -- I mean, how much visibility do you have on this inventory kind of build-up cycle?

I think as we move -- we said a little bit earlier that we're already starting to see some indications that maybe the inventory's a little leaner than maybe even the -- our end customers realize within the supply chain. Right now we don't see anything that would indicate this is a prolonged thing, that's going to take multiple quarters to work its way through. We're hopeful that Q4 is it. As we've talked about, in prior quarters, I think almost every quarter since I've joined the company, that we've tried to make people aware that the cable business is subject to lumpiness. I think it's a notoriously lumpy business, and we've had -- we've really not suffered any effects on that. The lumpiness has all been on the upside for us actually over the last 6 quarters or so as cable has grown very strongly. So I think this is the first quarter where we've started to witness that lumpy dynamic that we've always talked about but hasn't manifest itself. I think you're just seeing some of that lumpiness right now.

And finally, Broadcom is now coming out with their own 8-channel solution. How do you look at the competitive dynamics?

So Broadcom is coming up with their own 8-channel solutions, and we have had ours for a long time in the marketplace, right? And we've already announced our Full-Spectrum Capture with 24 channels that's far more sophisticated, far more advanced. Obviously, we will be -- our OEMs and our partners are driving, along with us, driving towards a transitioning happening to 1 gigabit per second faster so that we continue to maintain an active lead on that offering. Having said that, I know we look at ourselves as the preferred front end for the Intel-based platform, and there are dependencies on a lot of the things beyond our controls. So I think that all in all, we feel very strongly positioned with the right offering, with the lead on our competition to be able to continue to be successful in this market.

And our next question comes from the line of Quinn Bolton from Needham and Company.

I wanted to follow-up on Anil's question about the cable modem market. As you start to look into next year, hopefully we work through the inventory and the current 8x4 modems. But with the 16- and 24-channel count modems being announced by some of your customers, what's the risk that you see the 8x4s continue to decline in the first half in sort of anticipation of the ramp of that 16 and 24s later in the year? I mean, it may not be an "inventory correction," but is there a risk that you see sort of the 8x4s wind down ahead of the ramp of the higher channel count, faster modems?

Quinn, we don't see that risk primarily because the market -- these are pretty higher-end platforms. These are data and voice modems with the Full-Spectrum Capture, 24-channel base, 1 gigabit per second. The market is a little tier [ph] , and you'll have modems that are 8x4-based and we'll have modems at the higher end. So we see, predominantly, next year is still playing out to be an 8x4 market. But the second half of the year, maybe latter half of second half of the year to be 16x4 or 24 -- 16x8 or 24x8 picking up. So there is no such concern about 8x4s winding down. In fact, if anything we would like that to happen earlier but I don't think that's going to happen. So next year, the dynamics could be pretty tame. We would not worry of some very hectic changes to the system.

Okay. And then the second question is on the data side of the market. Can you give us some sense if there is normal seasonality in the March quarter, understand that the cable revenue is being impacted by customers drawing down inventory in the December quarter, but if you sort of remove the effect of that inventory correction, what would normal seasonality in that business be December versus March? I guess, what I'm trying to get at is with -- assuming that the inventories are one quarter correction, could you see that business recover in March? I know you're not giving specific guidance, but just trying to think about some of the seasonal patterns in that business.

So the thing that drives the buying cycles, buying from MSOs in the cable space, is primarily their CapEx allocation, right? I mean, every year, they go to the budgetary cycles. And during that process, they will do the normal vendor negotiations for pricing and such. So that cycle usually happens -- starts happening at the end of the year and into the early part of the year. So is it seasonality? I do not seen think so, but holiday is a seasonality in terms of the other budgets are allocated, then budgets are developed. So to that extent, I believe it will be -- first quarter is about the -- where you will start seeing a pickup start later in the first quarter or maybe in the early part of the quarter itself.

Okay. And then just moving to that -- the video side of cable, it sounds like that business was a little bit weaker, especially on the DTA side, in the third quarter. But it looks like video comes back a little bit in the December quarter. Is that, just again, somewhat reflecting the lumpiness of the cable market? Or are there other specific factors going on the video side of the business?

So Quinn, one thing I want to really emphasize in this call is that there are no material competitive dynamics that are affecting our cable forecast. It's just the -- one quarter, we'll have the video server gateway up, and the other quarter we'll have the DTA up. It seems that there is no real discernible pattern other than an ordering cycle and how the OEMs supply their product to the MSO. So we do not see any competitive dynamics that play in this particular situation as well even though it's the video markets.

Okay, great. And then just lastly, I know you guys indicated that the sort of actions taken by Silicon Labs to kind of create confusion with your hybrid TV customers may have resulted in some sockets going to other competitors, not necessarily SLAB. But it sounds like that hybrid TV is actually ramping pretty nicely for you right now. Do you think you've -- is this sort of reflecting some of those designs perhaps going away and you're still able to grow that business, or is the effect of the Silicon Labs' activity more of a later of 2013 effect?

Actually, firstly, the Silicon Lab's activities related to the IP actions that both the parties have taken have indeed slowed down our momentum in capture of hybrid TV. In hybrid TV, what was to be meant for the 2013 revenues, had this event not occurred, I hate to acknowledge this, but our view would have been -- we would have probably been rising up to be one of the top owners of the hybrid TV market. So much as we deride these techniques by the competitors, they have been successful in somewhat discouraging some of our customers from moving forward with the solutions. So all the growth you're seeing in hybrid TV is indeed 2013 sockets because what starts shipping in the fourth quarter is actually bit of 2013. But I think they've been very successful in hybrid TV in terms of what sockets we are winning. However, I regret to say that we did -- the sockets that we had won where we do not get any business was purely a result of Silicon Lab's activities, and we hope to rectify that with the course of action that we are pursuing right now.

And our next question comes from the line of Ross Seymore from Deutsche Bank.

This is Bob for Ross. Yesterday was the last I could use a baseball metaphor. But I was just curious, in the hybrid TV market, how are -- you've shown some great growth. But how early are we in this ramp? I mean, is it something that's going to take a pause for the next couple of quarters? Or was this -- was the third quarter really an encouraging sign, and we're kind of still on early days of the ramp?

I think the third quarter is still early signs. But I think, based on what we have on the backlog, we feel that we are -- the ramp -- on certain sockets, the ramp has already restarted. I think end of Q1 is where the -- I would say, I could strongly tell you that we are now in for a very strong growth. So having said that, we foresee hybrid TV getting stronger and stronger. I think I can safely tell you that right now. So you should not see any interruption in this ramp for hybrid TV.

Great. And maybe a question for Adam. I mean, I know the seasonality of the revenues are always tough. But curious about your OpEx, you talked about a 40-nanometer tape-out in 4Q. Does that -- does the pro forma OpEx then decline a little bit in 1Q? Or is there some kind of merit increases in 1Q taxes? Just curious if you can give some color on how that kind of smoothes out.

Yes, without giving any specific guidance for beyond the current quarter, I would expect that we'll see some step back from the OpEx that we're anticipating for Q4 in Q1 because we won't have that 40-nanometer R&D expense. So if you look at that, a 40-nanometer mask set, all-in, I'd say it's $1 million, right? So it's a pretty healthy step-up. We won't see the effects of a merit increase until Q2 of next year given where our cycles run. So I think that we will seek a reduction in spending in Q1 of next year. But there are some things -- there are some factors into that, that they're a little bit far off for now. But I don't expect another sequential increase. So I think we've been pretty good this year in giving our guidance and saying, "Look, we were going to be between, call it, $13.5 million and $15 million at the high end." We didn't hit the $15 million non-GAAP spending until this current Q4 guidance. So I think we've been pretty good staying within that envelope and exercising some OpEx control and discipline. I don't see that changing as we move forward into 2013. And again, I think so much the volatility or step-ups are really driven by these R&D tape outs. So, and again, like I said, we're not planning a 40-nanometer R&D tape-out in Q1 at this point.

And at this time, I am showing no further questions in my queue. I would like to turn the conference back over to management for closing comments.

Thank you, operator. As a reminder, we will be participating in the Stifel, Nicolaus Midwest One-on-One Conference in Chicago on November 8 and hope to see many of you there. Thank you, all, for joining us today, and we look forward to reporting on our progress to you in the next quarter. Thank you very much.

Ladies and gentlemen, this does conclude our conference for today. We thank you all for your participation. And at this time, you may now disconnect.